Tuesday 5 February 2013 16.19 EST
First published on Tuesday 5 February 2013 16.19 EST

A cross-party alliance of peers hasinjected new momentum into the stalling cross-party talks on the future of press regulation by passing a law to implement a key plank of the Leveson report.

In a massive defeat for the government – the second biggest rebellion against the coalition – peers voted by 272 to 141 to introduce a low-cost arbitration system for victims of press defamation. Newspapers that do not join the system will face higher damages if they are found to have defamed litigants.

The amendments to the defamation bill also include a skeleton system of press regulation and so represent the statutory rubicon David Cameron has promised he will not cross. The PM now faces the challenge of overturning these amendments when the bill returns to the Commons next month, placing an unmovable obstacle in the path of those who hoped to shepherd the Leveson report quietly and unremarked into long grass.

Labour welcomed the vote, saying it gave fresh momentum to the talks, but stressed they wanted to proceed on a cross-party basis.

In a half-hearted bid to quell the revolt, Lord McNally, the Liberal Democrat leader in the Lords, promised the much discussed government proposal for a royal charter to oversee press regulation would be published next week. But even he admitted that momentum had been absent from the cross-party talks.

Another round of cross-party talks will be held on Monday, but there is increasing scepticism that either the press industry or the Conservative side of the government are looking for an urgent solution. Ed Miliband has also let slip many deadlines to put the issue to a fresh vote in the Commons, but the peers vote ensures a deadline now exists.

The rebellion in the Lords included prominent Tories such as Lord Fowler, Lord Hurd and Lord Ashcroft, as well as more than 60 crossbenchers including Baroness O'Neill, the chair of the Equalities and Human Rights Commission and Baroness Boothroyd, the former speaker.

Explaining the need to introduce the low-cost arbitration service, the Labour backbench peer Lord Puttnam said: "As active members of this house, we have an obligation to act, and to be seen to act, on behalf of victims past, present and future. Anyone who reads the bill as it stands will not find so much as a hint of the fact that we live in a country that has spent much of the past two years debating the fallout directly attributable to the unaccountable power of newspapers over our public life and over the lives of ordinary citizens. It is almost as if Leveson never happened."

"It offers us the opportunity to break the logjam that would appear to have afflicted both the talks between the newspapers and the government and the talks between the three main political parties themselves. At the very minimum, we would have the opportunity to make justice in disputes with newspapers quick and affordable. It will put into effect an arbitration system that would allow ordinary people to get redress if they are defamed".

He added: "It goes without saying that the arbitration service would not be everything that Leveson recommends, but it is the element of Leveson that cannot happen without the support of parliament. The courts and the newspaper industry are unable simply to set up their own. Without statutory authority, the courts would not be able to give preferential treatment to those newspapers that used the low-cost arbitration service. Parliament would be giving power to the courts, and in doing so would be giving recognition to the newspapers' own independent self-regulation body".

Lord Fowler, a former Conservative party chairman, said: "The Leveson report was published at the end of November. We have waited and waited for action, but, instead, some newspapers, sensing a weakness of intent, have continued to attack Leveson in the most lurid and extreme manner, and often quite inaccurately"

He said the newspaper industry had imposed a news blackout on the cross party talks and the government had given no assurance it would act sensibly

Baroness Boothroyd said a new complaints procedure would change the culture of newspapers, adding "it will no longer suffice to be told that there will be an announcement 'tomorrow' … the amendments say quite clearly that time has run out and we must take action this very day".

Lord Skildelsky pointed out that some peers had complained the amenedments amounted to "Leveson by the backdoor". He responded "To my mind, that is an important merit of the bill because we are unlikely to get Leveson through the front door". Lord Black, representing the newspaper industry, insisted there was no question of putting anything into the long grass.

He insisted: "It is going to happen; my lawnmower is out in force already. Media lawyers from across the industry are working flat out to establish a scheme that will be good for the public but not an intolerable burden on the regional press in particular. Crucially, we have to find a scheme that will not simply be a new cash cow for claims farmers".